Having an overdraft can be a really useful thing. If you run out of money before getting paid it means that you will be able to borrow some and keep you going without having to organise a loan. However, an overdraft can also be a very expensive way to borrow money and so it is really important to make sure that you use it wisely.
Firstly it is really wise to know exactly how much of an overdraft you are entitled to. This is called your authorised overdraft. If you draw more than this you will be taking out an unauthorised overdraft and this can get you into trouble. This is because you will end up paying a lot more money. An unauthorised overdraft is much more expensive. It is good to check the costs of both types with your bank so that you know exactly how much you will be paying. An authorised overdraft can be pretty expensive but an unauthorised one can potentially be dearer than any other type of borrowing.
Therefore you need to be very careful. You need to make sure that you are always aware of how much money you have in your account and how much you are entitled to borrow. Obviously you want to borrow as little as possible for as short a time as possible. This means that if you have money elsewhere then it will much better if you use that before you go overdrawn. You should also think very carefully about what you are buying and whether it is really necessary.
Another thing to consider is how you will repay the overdraft. Once you put money into your account then you will pay off the overdraft and you may feel that this is a great solution. However, you have to then manage until you next get some income on less money. This can lead to a spiral of borrowing as by the end of the month you may again be short of money and borrow again. You could find that you need to start using your overdraft closer and closer to the start of the month and may even get to a stage where you cannot even pay it all off when you get paid. This may seem a bit over the top, but the fees and interest add up really quickly so it can be surprising how much you will owe in a short space of time. Therefore you need to think hard about making sure that you budget well during the month when you have made a repayment so that you do not need to borrow again.
As it is so dear it is wise to make sure that you only use an overdraft in an emergency. This means that you need to be able to carefully budget in the month and make sure that you have enough money to last you until you next get paid. This is not easy if you are not in the habit of doing so. To start with you need to take note of all of the money that you have to pay out each month, things like rent, bills, interest payments etc that have to be paid. You will also need to pay for food, transport and other things. It is worth making sure that you have enough money for all of those things before you spend money on things that are not necessary. It can be best to set up your bill payments by direct debit, if you can, for the same day of the month, preferably just after you get paid. Then you will know how much is left to spend on other things so that you can more easily budget.
Hopefully by carefully budgeting, being aware of how much money you have and spending wisely and making sure you have enough money to repay an overdraft if you use one, you will be able to carefully manage it. If you are aware of how much it costs, you should feel less inclined to use it and therefore be more motivated to manage your money. It can take a lot of will power and even life style changes to be able to do this, but it can be really worth it if you are much more in control of your money.